For consumers, paying more for a product typically means getting a higher quality product that outperforms other products in the same niche. For example, a consumer might decide to pay for a Chevy SUV than save a little money by opting for a Mitsubishi economy vehicle. In the health insurance industry, consumers are faced with the ultimate Catch-22.
Paying higher premiums for health insurance can result in lower out-of-pocket costs, as well as an increase in the number of covered healthcare services. On the other hand, paying more for health insurance results in higher monthly or annual premiums, which can be cost-prohibitive for a consumer operating on a super-tight budget.
Health insurance is one of the most difficult expenses to determine because several factors can come into play to change what you expect to pay for healthcare over the course of one year. However, there is one certainty that should help drive tour decision on whether to pay more for health insurance.
A higher premium equals a lower deductible.
In addition to considering the premium and deductible, you also might have to factor in the costs associated with copayments and coinsurance.
What is a Premium?
Your health insurance premium represents a fixed cost that you pay every month similar to monthly car and house payments. The fixed cost allows you to budget for monthly healthcare expenses by first starting with the value of your premium. You also can choose to pay an annual premium instead of having a monthly premium automatically deducted from your bank account.
The premium covers the cost of receiving health insurance benefits, such as the costs associated with an annual physical examination and a designated amount of prescription medication coverage.
Learn how to lower your health insurance premium.
What is a Deductible?
The deductible part of the equation represents the amount of money you must spend out-of-pocket before your health insurance policy takes over to cover the costs associated with receiving healthcare services. For instance, if your health insurance policy requires a $3,000 annual deductible, you must cover the first $3,000 in healthcare services before your policy kicks in to provide coverage.
What is the Relationship Between a Premium and a Deductible?
The most significant difference between a premium and a deductible is you can budget accurately for a premium. The value of the deductible that you must tap into for receiving healthcare services depends on the costs associated with the healthcare services. Using our $3,000 deductible example, you might use the entire deductible up during one year to pay for one surgery and not tap into it the next year because you did not receive any healthcare services that were not covered by the premium.
The higher the annual deductible, the lower the monthly premium, and vice versa. This means that if you are in good health and at a relatively young age, you might benefit from paying less in monthly premiums because you do not expect to use healthcare services not covered by the premium. If you expect to undergo a surgical procedure or use another type of costly healthcare service over the course of a health insurance policy, you should consider paying a higher monthly premium and a lower deductible.
What is a Copayment?
Health insurance is confusing enough just by having to address the issue of whether to pay more for a premium or deductible. Other factors impact how much you pay for health insurance, such as copayments.
A copayment is the fixed cost that you must pay every time to receive a specified healthcare service, For example, let’s assume you need to complete physical therapy sessions as a preventive strategy to mitigate the pain triggered by arthritis. Your health insurance plan might include a clause that requires you to pay a fixed fee every time you complete a physical therapy session.
What is Coinsurance?
Just because you reached the limit on your annual deductible does not mean you no longer have to pay out-of-pocket for healthcare services. Your policy might include a clause that requires you to pay a percentage of the cost of a healthcare service after you reach the limit on the health insurance policy’s deductible.
Going back to our $3,000 deductible, let’s assume you reach the deductible limit and your policy requires you to pay 25 percent of the cost associated with filling a medication prescription. You are responsible for paying 25 percent of the cost every time you refill the medication prescription.
The Bottom Line: Is it Better to Pay More for Health Insurance?
Is it better to pay more for health insurance? The question is the ideal question to generate the answer, “It depends.” You have to consider several factors, such as how much you can afford for an annual premium, as well as an annual deductible. Make sure to add any copayment and coinsurance costs to the equation as well.
Working with a licensed health insurance broker can help you plan for medical expenses by factoring in the costs associated with an annual deductible, as well as what you owe for copay and coinsurance expenses.
Shopping for health insurance that meets your budget needs is confusing and time-consuming. Let our national network of licensed brokers do the work for you! Quick, free, and easy. Simply request a free health insurance quote to get started.
Additional Health Insurance Savings Resources
Everything You Need to Know About Your Monthly Health Insurance Cost
Why You Should Regularly Evaluate Your Health Insurance Plan and Consider a Change
High-Deductible Health Plan: How it Works + Advantages/Disadvantages